Cloud Technology Monthly Report | June

Learn more about our Cloud Technology ETF 

Key Takeaways

• WFH behaviour will continue to boost Cloud spending post-COVID – rising to $500bn within 2 years.
• Majority of IT spending is moving to the Cloud away from hardware.
• Digital Entertainment - online Video and Gaming seeing huge usage. Asia fastest growing region.
• Gaming is already triple the size of Hollywood Box Office ($152bn vs $43bn).
• 50mn more Americans played games in 2020.
• Cloud usage in Asia for Online Gaming = fastest growing global area for Digital Entertainment.
• AI & 5G boosting Edge computing & Cloud spending.
• Multi & Hybrid Cloud increasingly popular due to open architecture.
• SaaS (Software as a Service) will continue to receive ~50% of Cloud spending.
• Alibaba Cloud overtaking Google Cloud - as 3rd largest global cloud revenues.
• Amazons’ AWS generates over 50% of group profits. (see chart)

Performance Review

Cloud Technology ETF (SKYY) Returns

Past performance is no guarantee of future performance. Source: Solactive, HANetf *12 Month figures based on 01.06.20 - 31.05.21.

HAN-GINS Cloud Technology ETF (SKYY) was mostly flat for May losing 0.3% but remains up 34.2% over the past 12 months.  SKYY offers broad exposure to all key areas of the Cloud revolution – infrastructure, security, platform and software – as a service.  SKYY’s large-cap and infrastructure exposure ensures it accurately tracks global cloud activity well beyond just the US and software developers.

Gaming and online Video streaming continues to boost cloud usage, with Gaming already triple the size of Hollywood’s Box office.

In May, the largest contributors to our Cloud Technology ETF were varied – but recent large-scale US hack attacks has pushed cloud security concerns to the forefront – benefiting the likes Crowdstrike (up another 6.5% after April gains of 14.3%).

Ooma (17.4%), Nutanix (16.5%) and Fireeye (12.6%) also benefited from cloud cybersecurity concerns and the growth of hybrid cloud services. Cloud groups involved in the detection and prevention of major cyberattacks are increasingly acquisition targets too for the large Cloud platforms run by AWS, Azure and Google.

Big Tech giants are expanding the Cloud reach into the fast-growing Healthcare sector, as hospitals increasingly switch to Virtual services, Wearables and Telemedicine. Microsoft’s $16bn acquisition of Nuance Communications reinforces this trend. Nuance is a leader in the field of digitizing doctor patient visit details/conversations and clinical documentation.

In 2021, a clear trend is the move to more hybrid/multi-cloud platforms and infrastructure.  Salesforce, IBM and SAP are expected to benefit from this open architecture - allowing the easy flow of data across multiple Clouds.  

Past performance is no guarantee of future performance. Source:  Solactive. Data as of 31.05.21

HAN-GINS Cloud Technology UCITS ETF – Performance (As of 31.05.21)

Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/05/2021 Past performance is no guarantee of future performance. Source of all data: Solactive/ HANetf as of 31/05/2021

Industry News

As of April 2021, Canalys reports that the worldwide cloud market grew 35% this quarter to $41.8 billion. AWS has 32% of the market, followed by Azure at 19%, Google at 7%, Alibaba Cloud close behind.

Technavio a leading consultancy predicts worldwide cloud spend will grow at an annualized 17% between 2021-2025.  They see growth of 20.4% just for 2021 = with the USD contributing 40% of these gains. Incremental spending growth of close to $300bn is expected over the next 4 years.

Gartner estimates 37% of all public cloud services revenue is from SaaS applications and services (in 2021), projected to reach $122.6bn with CRM being the dominant application category.  Corporates are prioritising cloud infrastructure investment to better support virtual workforces, supply chains, partners, and service partners.

SaaS, the largest segment of public cloud spending - is forecast to grow 19.3% this year. (Source:  https://cloudcomputing-news.net/news/2021/may/10/gartner-predicts-the-public-cloud-services-market-will-reach-397-4bn-by-2022-what-you-need-to-know/ and https://enterpriseirregulars.com/177360/gartner-predicts-public-cloud-services-market-will-reach-397-4b-by-2022/)

For illustrative purposes only. Source: https://www.prnewswire.com/news-releases/global-cloud-computing-market--over--287-billion-growth-expected-during-2021-2025--technavio-301306058.html

Cloud spending is not expected to slow down as the pandemic gets under control.  Remote work habits are expected to continue and Cloud computing is arguably the centrepiece of the world’s technical response to the COVID-19 crisis.

By the end of 2021, we expect 60% of companies[1] will utilise public cloud platforms and 25% of developers will use serverless. Cloud native technology is driving enterprise digital transformation strategies.[2]  Other key trends include:

Alibaba Cloud is expected to take over the No. 3 revenue spot globally, after Amazon Web Services (AWS) and Microsoft Azure.[3]

Constituent News

SKYY is now even more representative of the Cloud theme globally – with 75 holdings, expanding from 50 (fast-growing players). Our updated Equal Weighted approach, captures smaller and more innovative Cloud companies.  Each holding now averages around 1.3% at rebalance.

These changes, ensures SKYY’s broader holdings mirror the global revenue mix across the Cloud industry and its subthemes:

Highlights include: 

• More representative of Cloud industry with SaaS holdings (Software as a Service) now the largest weighting at 66%, PaaS 20% and IaaS 14%.
• A new ESG screen follows UN Global Compact rules (excludes controversial weapons, fossil fuels etc).
• SKYY is globally diversified - US exposure 77.2%, followed by China 7.8%, Israel 3.6%, Germany 2.8% and Japan 2.2%. 
• Amazons’ AWS generates over 50% of group profits now (see chart).

For illustrative purposes only. Source: https://www.parkmycloud.com/blog/aws-vs-azure-vs-google-cloud-market-share/

Outlook

The majority of IT corporate spend is moving away from onsite hardware and servers to remote Cloud usage.[4]  Data centre chip revenues and Hyperscale Cloud have seen significant revenue boosts during COVID. 

SaaS (Software as a Service) will continue to dominate Cloud spending (see chart below).  Infrastructure- and Platform as a Service areas together currently represent the remaining ~50% of Cloud computing revenues. 

Hybrid Cloud’s growing popularity using open-source software such as Linux ensures many more businesses can now embrace the Cloud. This ensures faster scaling up for business globally. The shift to hybrid cloud translates to a blurring of the lines between the public cloud and the traditional data centre. 

Artificial intelligence, analytics, security, IoT, and edge computing will likely be key differentiators among the top cloud service providers – along with serverless and managed services.

Cloud usage in Asia for online gaming and streaming has made this region the fastest growing area for digital entertainment.

Learn more about our cloud technology ETF here